AGEC 640 Tues., August 26, 2014 Introduction to Agricultural Development & Policy

1. AGEC 640Tues., August 26, 2014Introduction to Agricultural Development & Policy • Today: • Housekeeping • Motivation • Background reading (optional): WDR 2008, online only • Thursday: • The world food and financial crises of 2007-09 • Readings: Abbott (2009) and Masters (2008), online

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3. Housekeeping • Introductions & handout (questions for the semester ahead) • Syllabus & assignments (HWKs, exams & paper) • Feedback mechanisms • Homework #1 due Tues 9/9 (now available) • Explore drivers of change, using FAO & WDI data • This could be time consuming, so… • don’t procrastinate; start now!

4. Motivation Why this class? • subject • method

5. MotivationWhy this class? The subject • “agricultural” = production, consumption, markets (the food and fiber system) • “policy” • to understand and inform policymakers • to explain and predict policy choices (= “political economy”) • “development” ≡ changes (possibly improvements) over a long time horizon ≈ differences across all of the world’s countries …this is an introduction to the “policy” side of ag econ.

6. Motivation (continued) The method • we’ll do economics • use data and models to explain and predict • and thereby help inform decision-makers’ choices • in 640, it’s a lot of data and a few simple models • later classes build more difficult models • we’ll do economic analysis of policy choices • specifically …

7. MotivationWhat do we mean by “policy choices”? For this class, we define policy broadly as: • actions of the government, as opposed to individuals • may be backed by police power • having “no policy” means using only voluntary arrangements. Policy choices of the government include: • institutions (written or unwritten rules and organizations) • explicit: quality certification through USDA • implicit: disaster victims can expect special treatment • instruments (a particular action by those institutions) • negative restrictions: a regulation, quota or tax • positive incentives: an offer to buy, sell or subsidize

8. MotivationWhat do we mean by “economic analysis”? By analysis, we mean: • quantifiable models, in which • policy instruments are represented by a specific variable, & • endogenous effects of policy change are predicted, given • exogenous conditions fixed by data & model structure. By economic analysis, we mean: • all agents are optimizing something, subject to constraints • all outcomes are an equilibrium between the agents • the combination of optimization and equilibrium gives us: • consistent results, that are nonetheless interesting; • realistic results, that can be made to fit the data.

9. MotivationHow useful is economic policy analysis? Focus on quantifiable things: • we generally ignore the stated objectives of policy, and many important aspects of government such as legitimacy, democracy and freedom. Use optimization to describe behavior: • we generally ignore non-rational behavior (which may be especially important where information is limited -- as in risk perceptions, investments, etc.) Advanced economics often addresses subtle issues involving non-quantifiable and non-rational factors, but it’s much harder to do!

10. MotivationSome limitations, and strengths, of economics… This is a highly simplified world! • “In order to know anything, it is necessary to know everything, but to talk about anything, it is necessary to neglect a great deal.” (Joan Robinson, Economica1941) It captures something real, i.e. “stylized facts” • “I show life as it is, but stylized.” (Marcel Marceau in an NPR interview, 25 March 1998) …although it may seem weird: • “Mathematicians are like Frenchmen: whatever you say to them they translate into their own language and all at once it is something completely different.” (Johann Wolfgang von Goethe, Maxims and Reflexions, 1829)

11. What’s ahead? Thursday: The world food and financial crisis • Readings: • Abbott’s global overview for OECD • Masters’ paper for African Technology Dev. Forum Next week: Introduction to agricultural policy • Readings: • Norton, et al. (2006) textbook chapter • Tomich, et al. (1995) selections • Montgomery notes on the demographic transition • Homework #1 due the following Tuesday (9/9)